Navigating the Storm: U.S. Tariff Hikes and Managing the Impact
Making good on a long-standing promise to achieve “reciprocity” in trade imbalances, on April 2, 2025, President Donald Trump introduced a sweeping new tariff regime pursuant to his powers under the International Emergency Economic Powers Act of 1977 (“IEEPA”).[1] In what would become the steepest U.S. tariffs to be implemented in over a century, the President’s “reciprocal tariffs” were temporarily paused shortly after going into effect. But one thing is for certain: President Trump’s laser-focus on tariffs is not going anywhere. Enforcement agencies have been directed to prioritize tariff evasion and will be carefully scrutinizing corporate responses to increased trade burdens.
As tariff policies continue to develop, with rates now at record highs, understanding their implications is imperative for global companies.
A Renewed Focus on Tariffs: A Chronological Play-by-Play
Since President Trump took office on January 20, his Administration has rolled out sweeping new tariffs.
In early February, he signed an executive order imposing tariffs on imports from Mexico, Canada, and China—10% on all Chinese goods and 25% on Mexican and Canadian goods, effective February 4. While the tariffs on Mexican and Canadian imports were ultimately delayed, the Chinese tariffs went into effect as planned, prompting China to retaliate with its own tariffs on key U.S. products.
Later in February, President Trump issued two proclamations imposing additional tariffs on steel and aluminum imports, effective March 12. He also removed exemptions from his 2018 tariffs on steel, with the effect that all steel imports would be taxed at a minimum of 25%.[2] Aluminum imports would be taxed at a rate of 25% (up from 10%).[3] These steel and aluminum tariffs apply irrespective of country of origin.
And in March, President Trump announced a 25% tariff on automobiles and automobile parts under Section 232 of the Trade Expansion Act of 1962—which permits the President to levy tariffs on imports that threaten national security—with the tariffs for automobiles going into effect on April 3, and on May 3 for automobile parts.[4] While the steel and aluminum tariffs apply irrespective of country of origin, certain exceptions apply to the automobile and automobile part tariffs, most notably for automobiles and automobile parts eligible for special treatment under the U.S.-Mexico-Canada Agreement (“USMCA”).
On April 2, using his powers under the IEEPA, President Trump issued the latest round of U.S. tariffs in an Executive Order titled “Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits” (the “April 2 EO”).[5] The announcement included the imposition of two sets of tariffs: one for certain countries with whom the United States has large trade deficits, exacting tariff rates ranging from 11% to 50% (the “reciprocal tariffs”),[6] and for a second set of countries with neutral trade patterns with the United States, a “baseline tariff” of 10%. Among the steeper rates were a 34% tax on all imports from China, a 20% tax on all EU imports, 25% on South Korea, 24% on Japan, and 32% on Taiwan. Importantly, these tariffs are meant to be additive in nature, meaning that, when in effect, they are in addition to previously-implemented tariffs.[7]
The reciprocal tariffs went into effect on April 9, becoming the steepest U.S. tariffs in over a century. But they didn’t last long: amidst substantial declines on Wall Street and public pressure, including from fellow Republicans, the Trump Administration announced that it would be pausing the reciprocal tariffs on most countries for a “temporary” period of 90 days.[8] The one exception was China, where, responding to retaliatory measures enacted by China, President Trump raised import taxes to 125% “effective immediately.” (On April 10, the White House clarified that President Trump’s previously-announced 125% figure for tariffs against China is actually 145%, once his previous 20% fentanyl tariffs are accounted for.)
The Trump Administration further provided that smartphones and computers are exempt from the latest tariffs, as published by the U.S. Customs and Border Protection (“CBP”) on April 11, 2025.[9] However, as early as April 13, 2025, Commerce Secretary Howard Lutnick indicated the smartphone and computer exemption was only temporary, and that such goods would be included in the forthcoming tariffs on semiconductors.[10] The Department of Commerce posted notices on April 14, 2025, regarding its investigations into semiconductors and semiconductor manufacturing equipment, as well as pharmaceuticals, and how imports of products to make such goods and products that contain them affect national security. [11] Similar to its approach with respect to automobiles and automobile parts, the Trump Administration has communicated its intention to use the Trade Expansion Act to levy tariffs on those goods.
Preparing for a Prolonged High-Tariff, High-Enforcement Environment
Notwithstanding the current “pause” on reciprocal tariffs, the message is clear: the Trump Administration intends to rely on tariffs in a way not seen in our lifetimes. For companies, this will lead to meaningful supply chain impacts and potentially warrant strategic adjustments to the cost of tariffs or, at a minimum, the diversification of supplies to mitigate potential future tariff changes. But, in navigating such changes, caution is essential.
Section 592 of the Tariff Act of 1930 (“Section 592”) establishes importers’ obligations under U.S. customs laws, prohibiting persons from introducing merchandise into the commerce of the United States by means of material false statements or omissions, and sets out the penalties for noncompliance.[12] Enforcement of customs laws and regulations has historically been by CBP, which has the authority to penalize violations resulting from negligence, gross negligence, or fraud, while importers that exercise reasonable care in the importation of goods are not subject to penalties.[13] Section 592 provides for different penalty amounts depending on the importer’s level of culpability and cooperation, with a negligent or grossly negligent violation exposing an importer to a fine of two to four times the unpaid duty amount or the domestic value of the merchandise, and a fraudulent violation exposing the importer of a fine of up to the domestic value of the merchandise at issue.[14]
But enforcement by the U.S. Department of Justice (“DOJ”) has increased in recent years. The False Claims Act (“FCA”) is the primary tool used by the federal government to prosecute individuals and companies alleged to have defrauded the federal government, either by fraudulently claiming payment from the government or by avoiding payment owed to the government, referred to as a “reverse false claim.”[15] In the customs context, the FCA is used where importers knowingly provide false documentation or declarations to CBP concerning their country of origin (“COO”), valuation, or classification while paying improperly low customs or anti-dumping duties (an example of a “reverse false claim”).[16] The FCA imposes significant liability, including civil penalties of up to nearly $29,000 per violation,[17] treble damages, and, in certain circumstances, even whistleblower attorneys’ fees.[18]
The FCA has proved a nimble tool in prosecuting fraud against the federal government, with the DOJ reporting a total recovery of $2.9 billion in FCA settlements and judgments for the 2024 fiscal year.[19] The Trump Administration has stated that it intends to use the FCA to advance its trade policies, with the Deputy Assistant Attorney General Michael Granston confirming in February that the FCA has been serving and will continue to serve as a powerful tool in combating tariff evasion in the United States.[20]
Enforcement through the FCA in the customs arena is not novel. Below are just a few examples of the cases the DOJ has brought based on violations of customs laws and regulations:
- On March 25, 2025, Evolutions Flooring Inc., a San Francisco-based importer of multilayered wood flooring, agreed to pay $8.1 million to settle FCA allegations of evading customs duties on Chinese imports.[21] The DOJ alleged the company falsely declared the country of origin as Malaysia, avoiding higher Chinese tariffs.
The settlement resolved a lawsuit that was initially filed by relator Urban Global LLC, under the FCA’s qui tam provisions, which enable private individuals to act as whistleblowers on behalf of the government. Such actions are incentivized by the FCA, with private whistleblowers potentially qualified to receive up to 30% of any recovery. Of note, 2024 saw the highest-ever number of qui tam suits brought by whistleblowers.[22] - In August 2024, two Wisconsin-based companies that sold wiring and power distribution products agreed to pay more than $10 million to settle allegations that the companies violated the FCA by evading customs duties through a false invoice scheme that undervalued goods imported from China.[23]
- In February 2024, a Florida couple was charged under the Lacey Act and customs laws and received 57-month prison sentences for evading approximately $42.4 million in customs duties, after fraudulently declaring Chinese plywood as originating from Malaysia or Sri Lanka, avoiding anti-dumping duties exceeding 200%.[24]
- In January 2023, a California-based vitamins and nutritional supplements manufacturer paid $22.8 million after admitting to violating the FCA by misclassifying thousands of products imported from China in order to avoid customs duties.[25]
- In June 2019, the DOJ filed criminal and civil charges under the FCA against the CEO of a children’s apparel company and two U.S. entities, charging them with submitting invoices to the CBP that falsely understated the true value of the clothing that they imported into the U.S. in order to avoid paying customs duties.[26] The CEO ultimately pled guilty and was sentenced to six months in prison, and was further ordered to pay $1.65 million in forfeiture. The defendants settled the civil case with the DOJ in 2021, requiring the CEO to pay $3.2 million, and the companies to pay a total of $2.8 million to the U.S. government.[27]
- In December 2012, an importer of printer ink paid $45 million to resolve allegations that it misrepresented the country of origin on goods to evade antidumping and countervailing duties, with the DOJ maintaining that, though the printer ink “underwent a finishing process in Japan and Mexico before it was imported into the United States,” such process “was insufficient to constitute a substantial transformation to render these countries as the country of origin,” and that the countries of origin of the relevant goods were instead China and India.[28]
If the past is a prologue, the DOJ is likely to deploy the FCA even more broadly to meet customs enforcement priorities, especially with tariffs at historic highs. Companies should adjust their practices accordingly, focusing in particular on areas of high risk, such as the accurate classification of goods and their country of origin. Of note, CBP has full access to electronic data from every importer for every entry through the Automated Commercial Environment (ACE) portal, which gives CBP the ability to run sophisticated algorithms to find anomalies and to review any changes made in light of the new tariff policies. Now more than ever before, companies should carefully document COO determinations and classifications (particularly if adjusted due to recent tariffs), which could protect against future scrutiny by regulators.
A Look Ahead: No Rest for the Weary
Importantly, the 90-day pause in reciprocal tariff implementation should not be mistaken as a signal of a loosened policy stance; the Administration has stated that this relief is only temporary. What is more, while there are certain meaningful carveouts from the April 2 EO – including, for example, goods from Canada and Mexico, or lumber, pharmaceuticals, and copper – such exemptions are also considered to be temporary and merely reflective of ongoing tariff analyses on such trade relationships and products. For example, the USMCA is set to be reviewed by 2026, and uncertainty remains about future trade terms. And while lumber, pharmaceuticals, and copper enjoy an exemption from the April 2 EO,[29] it is widely anticipated that these goods will be targeted by separate sector-specific tariffs in the coming months. Companies should take proactive measures now to evaluate the current state of their customs compliance and confirm that consistent and robust procedures are in place, especially for the areas posing the highest risk:
- Country of origin determinations: Most of the new tariff programs impose different tariffs based on the COO, and so—particularly in this higher-tariff environment—companies may feel compelled to change the declared COO in an effort to minimize impact, or to route goods produced in a higher-tariff country through a lower-tariff country before shipping to the U.S., and declaring the COO as the country with the lower tariffs. But, as the DOJ enforcement history in this space makes clear, misclassifying a COO can lead to severe consequences, and so companies should be mindful of CBP guidance and historical precedent in this space whenever changing COO declarations.
- Misclassification: The Harmonized Tariff Schedule,[30] which sets out the tariffs on products, contains thousands of product categories, each governed by unique sets of complex rules. Given this complexity, similar products can be classified differently. But misclassification of goods – for example, improperly classifying goods with the result that they are subject to lower (or no, in the event of a relevant exemption) tariffs – can expose companies to significant liability.
- Product valuation: Tariffs are calculated as a percentage of the value of the goods being imported. To minimize tariffs, importers should be careful not to understate the value of the goods.
Now is the time to ensure that you are using reasonable care in import operations, including by conducting regular audits and implementing robust oversight of brokers and freight forwarders. In this current climate, preparing “reasonable care” memoranda (documenting how importers have complied with their obligation to exercise “reasonable care” in importing into the U.S., see 19 U.S.C. § 1484) can be beneficial to document how tariff-related obligations are being managed.
Navigating these complex geopolitical circumstances requires adept and informed approaches, and Linklaters is committed to guiding businesses through these intricacies, ensuring successful adaptation and resilience in an era of change.
[1] The IEEPA grants the President broad powers to regulate international commerce in response to unusual and extraordinary threats to the United States. See 50 U.S.C. § 1701 et seq. Under this authority, President Trump has implemented a series of tariffs designed to address what he declared as the national emergency posed by the U.S. trade deficit and non-reciprocal trade practices.
[2] Adjusting Imports of Steel into The United States – The White House.
[3] Adjusting Imports of Aluminum into The United States – The White House.
[4] Adjusting Imports of Automobiles and Automobile Parts into the United States – The White House.
[5] Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits – The White House.
[7] There are a number of exemptions in the April 2 EO, including articles such as donations, personal effects, and postal communications, subject to 50 U.S.C. § 1702(b) IEEPA exclusions; steel/aluminum articles and derivatives as well as autos/auto parts, already subject to Section 232 and Proclamation 10908 tariffs (set at 25%); other products enumerated in Annex II to the April 2 EO (here), including copper, pharmaceuticals, semiconductors, lumber articles, energy, and other certain minerals not available in the United States; all articles that may become subject to future Section 232 tariffs; and countries not covered by normal trade relations.
[8] Modifying Reciprocal Tariff Rates to Reflect Trading Partner Retaliation and Alignment – The White House.
[9] Updated Guidance- Reciprocal Tariff Exclusion for Specified Products, April 5, 2025, Effective Date – U.S Customs and Border Protection.
[10] Semiconductors from China will face a ‘special-focus type of tariff’: Lutnick, ABC News (“This is not like a permanent sort of exemption”).
[11] Notice of Request for Public Comments on Section 232 National Security Investigation of Imports of Pharmaceuticals and Pharmaceutical Ingredients; Notice of Request for Public Comments on Section 232 National Security Investigation of Imports of Semiconductors and Semiconductor Manufacturing Equipment.
[12] See generally 19 U.S.C. § 1592.
[13] Id. § 1592(b).
[14] Id. §§ 1592(c)(1), (2), (3).
[15] 31 U.S.C. § 3729 et seq.
[16] 31 U.S.C. § 3729(a)(1)(G).
[17] Federal Register: Civil Monetary Penalty Adjustments for Inflation.
[18] 31 U.S.C. § 3729(a).
[19] Office of Public Affairs | False Claims Act Settlements and Judgments Exceed $2.9B in Fiscal Year 2024 | United States Department of Justice.
[20] DOJ Official Flags ‘Aggressive’ FCA Approach Under Trump - Law360.
[21] Office of Public Affairs | Evolutions Flooring Inc. and Its Owners to Pay $8.1 Million to Settle False Claims Act Allegations Relating to Evaded Customs Duties | United States Department of Justice.
[22] Office of Public Affairs | False Claims Act Settlements and Judgments Exceed $2.9B in Fiscal Year 2024 | United States Department of Justice.
[23] Eastern District of Wisconsin | Two Brookfield, Wisconsin-Based Companies and Their Owners Pay Over $10 Million to Resolve Allegations that They Evaded Customs Duties | United States Department of Justice.
[24] Southern District of Florida | Florida conspirators sentenced to nearly five years in prison each for evading over $42 million in duties when illegally importing and selling plywood | United States Department of Justice.
[25] Southern District of New York | U.S. Attorney Announces $22.8 Million Settlement Of Civil Fraud Lawsuit Against Vitamin Importer For Underpaying Customs Duties Owed On Products Imported Into The United States | United States Department of Justice.
[26] Southern District of New York | Manhattan U.S. Attorney Announces Criminal And Civil Charges Against CEO Of Clothing Company For Million-Dollar Customs Fraud | United States Department of Justice.
[27] Southern District of New York | Manhattan U.S. Attorney Settles Civil Fraud Lawsuit Against Clothing Companies And Their Former CEO For Misrepresenting The Value Of Goods To Avoid Paying Customs Duties | United States Department of Justice.
[28] Office of Public Affairs | Japanese-Based Toyo Ink and Affiliates in New Jersey and Illinois Settle False Claims Allegation for $45 Million | United States Department of Justice. If two or more countries are involved in the production of a good or its materials, the relevant customs regulations provide a process to determine if the good’s country of origin is “substantially transformed” to the last country of production, notwithstanding the fact that certain components originated elsewhere. See generally 19 CFR 134.1(b). The CBP makes substantial transformation determinations on a case-by-case basis, generally looking to whether there has been a change in the product’s name, character, or use due to operations in the last country of production.
[29] Fact Sheet: President Donald J. Trump Declares National Emergency to Increase our Competitive Edge, Protect our Sovereignty, and Strengthen our National and Economic Security – The White House.
